Simmons Co., the mattress-maker which in late September announced plans to sell itself to investors, has just completed the next step in its efforts to bounce back from financial troubles stemming from $1 billion in debt. On Monday, the company filed for Chapter 11 bankruptcy reorganization.
On Tuesday, U.S. Bankruptcy Judge Mary F. Walrath of the District of Delaware signed an interim order authorizing Simmons to obtain up to $35 million in post-petition debtor-in-possession, or DIP, financing. Up to $15 million of that is accessible immediately and slated to be used for working capital and general corporate purposes pending entry of a final order.
Walrath also OK’d the debtors’ use of up to $40 million in cash collateral for continuation of the business, including payroll and general corporate obligations.
A final hearing is scheduled for Dec. 10.
Simmons is represented in the bankruptcy by attorneys from Richards, Layton & Finger in Wilmington, Del., and by attorneys from Weil, Gotshal & Manges in Houston. Lawyers from Simpson, Thacher & Bartlett in New York are representing the DIP agents and the pre-petition agents, which include Deutsche Bank Trust Company Americas and Deutsche Bank AG New York Branch.
In filing this prepackaged bankruptcy, Simmons plans to whittle its $1 billion in debt to $450 million, according to an earlier interview with the company’s general counsel, Kristen K. McGuffey. The mattress-maker intends to do that by selling itself for $760 million to affiliates of Ares Management, a Los Angeles-based investment management firm, and Teachers’ Private Capital, the private investment arm of the Ontario Teachers Pension Plan.
Though Simmons’ mattress sales were affected by the economic downturn, a report issued by Moody’s Investor Services and cited in the New York Times blames the company’s financial troubles more on how it was managed by the private equity firm that owns it, Thomas H. Lee Partners.
Moody’s compares the very different fates of Simmons and another mattress company, Sealy, both of which were sold to private equity firms in 2004 for $1.1 billion and $1.5 billion, respectively, and both of which had roughly the same leverage.
According to Moody’s, Thomas H. Lee essentially used Simmons as a piggy bank, paying itself for its investment by getting the mattress maker to twice issue debt. Simmons raised $450 million, $375 million of which went to Thomas H. Lee, Moody’s reports.
By contrast, Sealy’s private equity owner, Kohlberg Kravis Roberts, elected to pay itself back by taking the company public in 2006.
The difference: When the economic downturn softened mattress sales, Simmons had a far higher debt level than Sealy. Sealy was able to amend its credit agreements, Moody’s reports. Simmons, as bankruptcy documents attest, wasn’t so lucky.
The case is Simmons Co. 09-14037.